Film and television producers have used Oscar-worthy tactics to convince state lawmakers to pay them billions of dollars for projects in New York, ostensibly to boost the local economy. Governor Hochul last month proposed making the handouts even larger. But a closer review of the data reveals Albany should be yelling “cut” — not ordering a sequel.
New York in 2004 began subsidizing film and television productions by creating a tax credit. The credit, totaling $25 million per year, allowed producers to claim 10 percent of certain costs from filming in New York. The reasoning behind the credit was that producers considering sites and studios across the world could be wooed to select New York, and in theory, bring an economic windfall as production budgets flowed into the local economy. Other states, most notably Louisiana, had enacted similar incentives in the 1990s, and Louisiana’s was hiked significantly in 2002.
New York’s tax credit is refundable, meaning that after being applied to a producer’s state tax liability, the producer gets a check from New York for the remainder.
As more states began offering or hiking their incentives, New York officials expanded their own, eventually making it worth up to 35 percent of filming costs in 2008. The Legislature made post-production work, such as visual effects and editing, eligible for the credit, and increased the pool of credits available in a year to $420 million.
In 2020, Governor Andrew Cuomo successfully proposed paring back the credit, trimming it to 25 percent of costs in most cases and making fewer projects eligible to “enhance the effectiveness and sustainability” of the program.
But earlier this month, Governor Hochul took the opposite approach, asking the Legislature to make film and television productions eligible for up to 35 percent reimbursement and hiking the pot of credits to $700 million per year. Hochul also proposed making more parts of production, such as writer and director salaries, eligible for reimbursement through the tax credit.
The credit’s defenders point to states such as California, Georgia, and New Jersey, which also shower producers with public money. They argue that New York cannot unilaterally stop supporting its own production industry with the tax credit without risking losses to other states.
Proponents have found sympathetic ears among Albany lawmakers, who are receptive to talk about “jobs” and relish in being able to hobnob with celebrities. The state’s labor unions have defended the credit because it supports unionized crew and studio positions, and sticking up for it has also paid dividends for politicians’ campaign coffers, especially if they’re seen as a “strong protector” of the tax credit.
But the industry has done an Oscar-worthy job of keeping lawmakers glued to a few key misconceptions about the tax credit.
Consider the following spoilers.
The state loses money on it.
The fundamental rule behind any economic development tax credit is that it’s supposed to result in more tax receipts than the state is forgoing.
But in three rounds of economic studies (demanded by credit critics in the Legislature), the state has never demonstrated that New York state taxpayers are coming out ahead.
That’s because the state has no way of discriminating between projects that would be filming in New York regardless of the credit, and those who it’s actually “winning” with the credit.
The state’s latest economic impact study, which is meant to justify the credit by examining its effect on the state economy as a whole, attributed about $1 billion in state tax receipts to economic activity generated, directly and indirectly, by almost $2.1 billion in film tax credits issued in 2019 and 2020 for production costs. Put another way, by the state’s own estimate, New York state taxpayers lost about 49 cents for every dollar in film credits.
The study authors, unable to show state taxpayers get a return, have repeatedly factored in taxes paid to New York City and other local governments, which together make it appear the credit, just barely, pays for itself. These claims, again, are all based on generous assumptions about the secondary effects of the subsidies through the economy.
In 2019, the projects that collected the credit for production or post-production work reported paying $964 million in credit-eligible wages and another $1.9 billion in other New York-located costs, and received $630 million in credits.
Even if those wages were taxed at an average state income tax rate of 6 percent, and if all the other spending was subject to the state’s 4 percent sales tax, the result would have been only $134 million in tax receipts—21 cents for every dollar in credits.
The film credit is the biggest but not the only way New York taxpayers are supporting the film and television industry. State government has given studios several million dollars in capital grants, funded public agencies to facilitate filming, and picked up millions in the studios’ job training costs. Late-night network television shows benefited from a pair of special giveaways which involved tweaks to the production-credit rules and cash for studio renovations.
To that end, New York taxpayers lose money on the state’s film tax credit. They lose even more money on their support for the film and television industry as a whole.
The employment effect is overstated.
Estimates and claims related to the film incentive’s impact tend to be rooted in a few big assumptions.
First, they often assume there would be no film or television employment in New York whatsoever were it not for Albany’s largesse (something that seems to undercut the state’s claim about being a naturally delightful, scenic, and easy place to shoot projects, and its history of shooting iconic films and television shows for decades before incentives were concocted).
Proponents also make assumptions about how much other spending and employment is “induced” by the projects being subsidized by the credit, as seen in their calculations about the affect on state tax receipts.
Empire State Development (ESD), the state agency that administers the incentives, has said the credit “supports” 57,000+ jobs per year. Camoin Associates, which inked the state’s economic impact studies, attributed about 114,000 jobs—”direct,” “indirect,” and “induced,” full-time, part-time, and temporary—to the film incentives during 2019 and 2020.
Looking at film productions themselves, projects filing for credits in 2019 reported an even bigger number: over 176,000 “hires.” But as Hell Gate’s Neil deMause explained earlier this week in an excellent criticism of the program, the more appropriate term for this type of employment is “gigs.”
ESD records show projects that got credits involved 21.4 million manhours, or 10,700 full-time equivalents, totaling $963 million in wages.
How does that compare to the industry as a whole? Federal data for 2019 show New York had 46,539 jobs and just shy of $5 billion in wages in the “motion picture and video production” subsector (NAICS 51211), where most if not almost all affected employees are counted. It strongly suggests that the film tax credit is supporting far less than half of the state’s film production and post-production jobs.
Between 2008, when the film credit was supersized, and 2019, the last year before COVID, employment in New York’s motion picture and video production subsector grew 43 percent—but it grew nationally, too, by 27 percent.
If all of New York’s growth since 2008 were attributed to the film credit, it would mean the state has been supporting about 14,000 jobs at a cost of about $30,000 each. But assuming the subsidy is responsible only for job growth beyond the national growth rate, the cost of New York’s film incentive is closer to $90,000 per job.
What industry wouldn’t show marginal growth if state government subsidized payrolls this much? By comparison, how much would $420 million in personal income tax, or corporate franchise tax, relief do for the state’s job picture?
Just as the credit has only had a marginal effect in hiking employment, repealing it wouldn’t be the end of the world for the industry because, as tax-credit proponents are fond of saying, the productions will happen somewhere. Many if not most would be shot in New York regardless because there’s where so much studio and talent infrastructure is located.
It helps upstate—if “upstate” starts in Midtown.
In 2019 and 2020, 92 percent of the production spending supported by credits went to projects in New York City. About three-quarters of the state’s film and television production jobs are in Manhattan alone.
Politicians and industry advocates from upstate communities such as Buffalo and most recently Cooperstown argue they’re on the cusp of becoming Hollywood-on-the-Hudson, if only Albany keeps needlessly paying people to work there.
By that logic, the North Country has potential as a citrus powerhouse, if only Governor Hochul sends enough cash to build heated orange groves.
In reality, even as they lose money for state taxpayers, the film tax credit provides a windfall for New York City government, where most industry wages are spent.
On the other hand, repealing the film credit and cutting taxes uniformly statewide would produce a more distributed benefit and likely do far more to contribute to job growth outside New York City.
It’s propping up the industry, not propelling it.
ESD says the film credit is “designed to strengthen the film industry in New York state.” That suggests New York will someday reach a point where the industry is “strong” enough that it doesn’t need massive state support. But advocates have never articulated a scenario where public money would no longer be necessary.
The governor’s executive budget proposal, which would hike the film credit, strikes a very different tone, saying the plan “would allow New York to meet the rising demand for New York’s talent and resources.”
If there’s “rising demand” for New York’s film and television industry, the state should be reducing its incentives, not hiking them. Doesn’t that mean they’re already “strong” enough to stand on their own? Shouldn’t the governor and Legislature be extending on what they did in 2020 to reduce the extent to which the state subsidizes any particular project?
As former Pataki aide David Catalfamo, who had a hand in creating New York’s film and television incentives, wrote recently:
The thing about economic development incentives is that when they work, they are supposed to build lasting capacity. The film industry in New York has added significant capacity in sound stages, production and post production facilities and a talented workforce – the program has worked in that regard and yet the price tag continues to go up.
New York should break from the script.
More states are jumping into the film-incentive business, piping budget windfalls into new and enhanced credit schemes with which New York is competing (and losing money on).
New York should immediately repeal its production and post-production tax credits because the state loses money on the deal. Since the credits are claimed years in advance, this would give other states time to dial back their own—since they wouldn’t be competing with New York anymore.
Senate Minority Leader Rob Ortt (R-Niagara County) and Assemblyman Steve Hawley (R-Genesee County) have introduced legislation each session since 2017 that would eliminate New York’s film tax credit.
Skepticism about film credits isn’t limited to Albany, or to any one political party. Michigan repealed its credit in 2015. Connecticut’s economic development chief urged lawmakers in Hartford to revisit the state’s multi-pronged subsidies for the film and television industry. The state’s own reporting showed a net loss of half a billion dollars over a decade, and a contingent of progressive lawmakers this year proposed phasing out the credit entirely.
This might be derided as unilateral disarmament, but New York could use its size to establish an interstate compact to end film credits nationally. That same infrastructure could ultimately get states to agree to end the use of state and local taxpayer funds to compete for employers.
Now that would be a heck of a plot twist.